Product Market Integration, Rents and Wage Inequality

27 Pages Posted: 11 Apr 2010

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Allan Sorensen

Aarhus University, Economics and Business

Date Written: April 9, 2010

Abstract

Globalization in the form of product market integration affects labour markets and produces winners and losers. While there are aggregate gains, it is in general ambiguous how inequality is affected. We explore this issue in a Ricardian model and show that it depends on the balance between "protection" and "specialization" rents. In particular, wage inequality among similar workers (residual wage inequality) may be U-shaped, at first decreasing and then increasing in the process of product market integration. Consequently, there may be gains in both the efficiency and the equity dimension until integration reaches a certain level at which a trade-off arises.

Keywords: Trade frictions, relative productivity, rent sharing, job turnover and inequality

JEL Classification: F15, F16, J39, J5, J63

Suggested Citation

Andersen, Torben M. and Sorensen, Allan, Product Market Integration, Rents and Wage Inequality (April 9, 2010). Available at SSRN: https://ssrn.com/abstract=1586855 or http://dx.doi.org/10.2139/ssrn.1586855

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

University Park
Building 322
DK-8000 Aarhus C
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+45 8 942 1609 (Phone)
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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Allan Sorensen

Aarhus University, Economics and Business ( email )

Fuglesangsalle 4
Aarhus V, 8210
Denmark

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